QE not the solution to low growth and debt crisis

Commenting on the rumours that quantitative easing is to be resumed, Prof Philip Booth, Editorial Director at the Institute of Economic Affairs, said:

“Central banks are playing a dangerous game if they believe that the developed world's growth problem can be solved by flooding the economy with liquidity.

“There are currently rumours about the likelihood of further quantitative easing by both the Federal Reserve and by the Bank of England. There is a time and place for further QE which would be a reasonable policy to adopt if the money supply began to plummet as it did in the US at the beginning of the Great Depression.

“However, there is a real danger that the authorities will use QE to deal with problems that cannot be solved by printing money - such as low growth and the huge level of indebtedness. Inflation in the UK is well over twice the target rate. There is no evidence that creating more inflation will lead to higher growth. The only way that economic growth will return is through policies that will create an environment of lower taxation and lower regulation together with a recognition that the debt crisis must be resolved without just shuffling the debt around. As figures released earlier this week show, increased levels of tax and regulation have caused the US and the UK to slip down the league table of economic freedom - economic freedom and growth are strongly linked.”

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